During ´¬üscal 1981, Anacomp initiated and completed development of a new com-
puter software switching system called H-10000 to be marketed to major ´¬ünancial institu-
tions. Anacomp entered into an agreement with EFT Partners, Ltd. (ÔÇťEFTÔÇŁ), a limited
partnership formed in the fall of 1980. Several of´¬ücers and directors of Anacomp pur-
chased limited partnership units in EFT, aggregating approximately 31% of the partner-
ship units, and Kranzley & Co., a wholly-owned subsidiary of Anacomp, was the general
partner. The remaining limited partnership interests were owned by persons not af´¬üliated
with Anacomp. Anacomp agreed to develop and market the system, and EFT agreed to
pay a development fee of $1,000, of which $910 was paid during 1981 and an addi-
tional $90 during 1982. The contract was reported on the completed contract basis; rev-
enue and pro´¬üts were recognized upon completion during the fourth quarter of 1981. In
June 1982, Kranzley & Co. exercised its right under the purchase option to buy the inter-
ests of the limited partners at the appraised fair market value for the H-10000 system of
$2,300.

Anacomp
CEFT

During ´¬üscal 1981, Anacomp entered into an agreement with CEFT Partners, Ltd.
(ÔÇťCEFTÔÇŁ), a limited partnership formed in December 1980, and primary development
banks to jointly develop a new computer funds transfer software system to be marketed to
major ´¬ünancial institutions. Certain of´¬ücers, directors and employees of Anacomp pur-
chased limited partnership units in CEFT aggregating approximately 9% of the limited
partnership units. The remaining partnership interest and the general partnership interest
are owned by persons not af´¬üliated with Anacomp.
Under the development agreement, Anacomp agreed to develop the new system on
a best-effort basis. The agreement permits Anacomp to contract with primary develop-
ment banks to provide development fees up to $1,000 in addition to the $2,100 develop-
ment fee to be paid by the partnership. In June 1981, the general partner agreed to
permit Anacomp to increase the bank fees allowable to $2,000 on this project. Contracts
with ´¬üve banks aggregating $2,000 have been completed.
Anacomp has acquired rights to a system owned by a major bank at a cost of $500
to assist and expedite the completion of the system. A portion of this cost has been
charged to expense as a system development cost and the remainder is being amortized
over the expected marketing life of the purchased system in its unmodi´¬üed form.
The system was certi´¬üed as being complete in July 1982, and Anacomp has agreed
to market it for seven years on an exclusive commission basis. Anacomp has the option to
acquire all rights to the system at the greater of (a) fair market value or (b) $3,000 to
$5,000, depending on the date the option is exercised. Revenues earned on this software
development project were $3,150 and $942 during ´¬üscal 1981 and 1982.

CBS

During ´¬üscal 1981, Anacomp entered into an agreement with CBS Partners, Ltd.
(ÔÇťCBSÔÇŁ), a limited partnership formed in April 1981, and primary development banks to
jointly develop a wholesale banking computer software system to be marketed to major
´¬ünancial institutions. Certain of´¬ücers, directors and employees of Anacomp purchased
752 Case: Anacomp, Inc.

22 Part 4 Additional Cases

limited partnership units in the partnership aggregating approximately 20% of the limited
partnership units. The remaining limited partnership interest and the general partnership
interest are owned by persons not af´¬üliated with Anacomp. Under the development
agreement, Anacomp agreed to develop the new system on a best-efforts basis. The
agreement permits Anacomp to contract with primary development banks to provide
development fees up to $3,750 in addition to the $4,500 development fee to be paid by
the partnership. Contracts with three banks aggregating $3,750 have been completed.
Anacomp has acquired rights to a wholesale banking system owned by a major
bank at a cost of $1,350 to assist and expedite the completion of the system. A portion of
this cost is being charged to expense as a system development cost and the remainder is
being amortized over the expected marketing life of the purchased system in its unmodi-
´¬üed form.
Upon completion of the system, Anacomp has agreed to market it for seven years on
an exclusive commission basis. Anacomp has the option to acquire all rights to CBS at the
greater of (a) fair market value or (b) $7,000 to $9,000, depending on the date the
Anacomp

option is exercised. Revenues earned on this software development project were $2,620
and $4,319 during 1981 and 1982.

CIBS

Subsequent to June 30, 1982, Anacomp entered into an agreement with CIBS Part-
ners, Limited (ÔÇťCIBSÔÇŁ), a limited partnership formed in April 1981, to develop new soft-
ware systems for large banks engaged in international business. Certain of´¬ücers,
directors and employees of Anacomp purchased limited partnership units in CIBS aggre-
gating approximately 6.5% of the limited partnership units. The remaining limited part-
nership interests are owned by persons not af´¬üliated with Anacomp. Anacomp is the sole
holder of $400 of the non-voting preferred stock of the corporate general partner. The
partnership payments under the development agreements are to be funded with $26,250
of partnersÔÇ™ capital investment.
Under the development agreement, Anacomp has agreed to develop the new sys-
tems on a best-efforts basis. The agreement permits Anacomp to contract with primary
development banks to provide development fees up to $12,000 in addition to the
$23,000 development fee to be paid by the partnership. A contract with one bank for
$500 has been completed.
Upon completion of the systems, Anacomp has agreed to lease the systems for ´¬üve
years on an exclusive basis at rental based on a percentage of license fees generated.
Anacomp has the option to acquire all rights to the systems during the three-year period
commencing one year after completion of the systems at total prices ranging from
$46,400 to $59,700, plus a share of licensing fees generated thereafter, depending on
the year in which the option is exercised.
At June 30, 1982, the Company considered the funding for this project to be immi-
nent. Accordingly, costs of $5,647, including $2,750 to acquire rights to certain software
incurred in commencing the development of CIBS, were deferred until such time as
project funding became available in August 1982. Such costs will be charged to opera-
tions in ´¬üscal 1983.
753
Case: Anacomp, Inc.

23
Part 4 Additional Cases

Other

During ´¬üscal 1980, a group of of´¬ücers and directors of Anacomp formed a limited
partnership which purchased a computer system and leased it to Anacomp at a competi-
tive rental rate. In May 1982, the Company purchased the computer equipment from the
partnership for $1,167, which was its appraised value.

Note 5. Cash, Cash Investments and Short-Term Borrowings

Cash balances at June 30, 1982 and 1981, include temporary investments of
$34,380 and $26,550, respectively, at costs which approximate market value. Of the
amounts invested at June 20, 1982, $10,000 is pledged as collateral for the short-term
borrowings from banks of $10,000 and is restricted as to withdrawal.
At June 20, 1982, Anacomp has short-term lines of credit from banks in the amount
of $39,000, of which $35,000 is unused. Anacomp has agreed to maintain compensa-
ting balances, not restricted as to withdrawal, on certain of these lines. The average of

Anacomp
compensating balances on these lines was approximately 5% of the available lines during
´¬üscal 1982.

issue discount of $7,440 42,560 ÔÇ”
Notes payable to banks at an average rate of 15.5%
at June 30, 1982, due in installments to 1985 12,880 1,436
Other 8,203 8,174
108,115 52,950
Less current portion 2,907 2,359
$105,208 $50,591
.........................................................................................................................

Other debt includes equipment purchase notes, debtor to ´¬ünance acquisitions, mort-
gages and obligations under capitalized ´¬ünancial leases. These items have effective costs
of 93Ôü„4% to 15% and are payable in installments over varying periods extending to 2006.
Shares representing substantially all of the operations of DSI are pledged as collateral for
a note with a discounted balance of $2,793 at June 30, 1982. At June 30, 1982, pro-
cessing equipment with an aggregate book value of approximately $3,600 is pledged as
collateral under certain of the debt agreements.
Anacomp is guarantor of a bank loan to AnacompÔÇ™s wholly-owned leasing subsid-
iary. At June 30, 1982, the balance of the debt being guaranteed is $480.
At June 30, 1982, the aggregate maturities of long-term debt through ´¬üscal year
1987 are: 1983, $2,907; 1984, $12,972; 1985, $3,482; 1986, $347; and 1987,
$219.

Note 9. Capital Stock

Stock Dividends and Stock Splits

The Board of Directors declared the following stock dividends and stock splits during
the three years ended June 30, 1982:
January, 1980ÔÇ”´¬üve-for-four stock split
March, 1981ÔÇ”´¬üve-for-four stock split
755
Case: Anacomp, Inc.

25
Part 4 Additional Cases

All applicable share and per share amounts have been restated to re´¬‚ect the stock
dividends and stock splits. All conversion prices and stock option data have also been
adjusted to give effect to the stock dividends and stock split.

Note 10. Segment Information

Anacomp operates in two business segmentsÔÇ”data center services and computer
services. Data center services consist of providing computer output micro´¬ülm (ÔÇťCOMÔÇŁ)
and computer processing for banks and credit unions through a network of branch
of´¬üces, where AnacompÔÇ™s equipment and personnel process data for numerous custom-
ers at each branch site. Computer services consist of providing computer software, prima-
rily to large ´¬ünancial institutions, and managing computer facilities for large customers,
primarily state and local governments.